By Cliff Edwards and Olga Kharif When Intel (INTC) CEO Paul S. Otellini opened his newspaper while sipping his morning coffee on Aug. 23, he couldn't miss the latest salvo from rival Advanced Micro Devices (AMD).
Intent on stealing some of the limelight from Intel's three-day semiannual developer forum in San Francisco, which ends Aug. 25, the smaller chipmaker took out full-page ads in several major newspapers that challenged Intel to a dual-core chip duel (see BW Online, 8/23/05, "AMD to Intel: Let's Rumble").
Dual-core technology can be thought of as two processors combined on one chip, allowing for faster performance while not necessarily revving up energy consumption.
WIDELY ANTICIPATED. As head of a company never known to turn down a challenge, Otellini in his opening keynote announced a major shift in the way the chip giant will make and market its chips. Intel plans to essentially dump its Pentium 4 and Xeon architectures.
The chipmaker by the end of next year will focus on "performance per watt," using its low-power Pentium M notebook architecture as the basis for all its microprocessors, featuring more and more cores (Intel says it's already working on chips with four and more cores). This is in response to customers concerned about continually rising power consumption.
The news in itself isn't all that new, and the announcement was widely anticipated. What's surprising is that it took Intel so long to acknowledge that it needed to change.
FOCUS ON LAPTOPS. AMD and even smaller rivals such as Via Technology, along with their technology partners, have been busy creating innovative PC and server platforms that resonate with customers, which increasingly value small form factors and energy savings.
Indeed, in the past year, laptops have finally began outpacing desktop PCs in shipments, "and that's where [Intel] needs to focus its efforts," says Brian Matas, an analyst with semiconductor consultancy IC Insights.
While Intel may not be the first to market with dual-core chips, the decision by the world's largest chipmaker will help drive new technology and innovations, analysts say.
ADDED LEAD TIME. "This move has been a long time coming," says Rob Enderle, principal analyst of Enderle Group. "Intel clearly wasn't focused on where the market was going, but where it had been. They were out of step with 64-bit [technology, allowing for higher-performance processors] and the move to dual-core and the requirement for lower power consumption. The good news is now they're going to help drive all these things."
Even so, Intel's belated move gives AMD and other rivals additional time to gain market share -- and could backfire in the short-term. Intel doesn't plan to release its new, as-yet unnamed products until the second half of 2006, but it will continue to roll out chips under the old architecture until then. That could have the unintended effect of some customers delaying purchases of Intel-based systems.
Already this year, AMD has captured more than 10% of the highly lucrative server market with its 64-bit Opteron chip, according to chip consultancy Mercury Research. And the smaller chipmaker is moving aggressively to capture share in the desktop and notebook PC market with its Athlon 64 desktop chip and Turion notebook chip, both of which it promotes as higher performing than Intel's offerings, with less power consumption.
PROMISES, PROMISES. "AMD listens to its customers. This is why for more than two years now, we have been delivering the industry-leading performance-per-watt and giving customers the power-efficient solutions they need today, not promises of solutions yet to come," says Ben Williams, vice-president for commercial business at AMD.
"Our competitor has chosen to fall back on these promises while we are giving them every opportunity to challenge our dual-core and performance-per-watt leadership today," says Williams. "Meanwhile, we are confident the marketplace will continue to respond to customer-centric innovation and choose AMD64 technology with Direct Connect Architecture, as demonstrated by our growth in x86 servers."
Intel is right behind its rival, however. It's already sampling its dual-core server chips, which is "probably why AMD decided to point out [its advantage] now," says Dean McCarron, head of Mercury Research.
ONE-HIT WONDER? Intel's overall share of the processors market is up slightly, thanks to robust sales of its chips for Microsoft's (MSFT) Xbox gaming console in the second quarter.
In his remarks, Otellini suggested that AMD may be a one-hit wonder, as Intel moves to meet the challenge. "Intel is not about a point product," he said. "Intel is about moving industries."
And the chip giant has a lot more cash than AMD to pour into R&D and marketing - as well as a lot more clout in encouraging device manufacturers to use its products. "It's never wise to bet against Intel," says Roger Kay, president of tech consultancy Endpoint Technologies Associates.
LOWER ENERGY BILLS. The Aug. 23 announcement could have many ramifications for users. Processors that are more power-efficient and, thus require less cooling and fanning (translation: They aren't as noisy) could change the looks of PCs and server farms, says Kay.
Quieter desktops containing the new chips will be more compact and better suited for storing movies and music in the living room. Server farms could become more dense, as the boxes they'll contain won't pump out as much heat, says Kay. Intel's execs say their chips will allow for two to three times better power performance.
Best of all, the new chips could significantly lower consumers' and businesses' electricity bills. A typical server today runs up power costs that cover half of its original purchase price in about two years, according to Intel.
MARKET WILL DECIDE. Industry watchers also were expecting another major announcement on Aug. 24 from Intel of its "East Fork" entertainment PC platform. It, too, is expected to use the Pentium M notebook chip architecture.
But the Intel forum show was rife with speculation that the chipmaker would dump Microsoft's Media Center PC software in favor of other, cheaper operating systems after Otellini in his keynote showed a demo running unnamed software.
As for AMD's dual-core challenge, Otellini deflected a question asking whether Intel will participate in a live shootout between their respective chips. He says he prefers to let the market settle who will be declared the winner. One thing is clear: Both sides for the first time next year will have arsenals strong enough to make this a real competition.
Edwards is a correspondent in BusinessWeek's Silicon Valley bureau, and Kharif is a reporter for BusinessWeek Online in Portland, Ore.